Court hears arguments in high-stakes 'LLC loophole' case

CATSKILL — In the seat of Greene County, located on the banks of the Hudson about halfway between Kingston and Albany, competing lawyers presented arguments in a case with the potential to impact the flow of millions of dollars each year to New York’s most powerful politicians.

The Brennan Center for Justice, along with Emery Celli Brinckerhoff & Abady LLP and several co-plaintiffs, brought suit against the state Board of Elections in July for its treatment of limited liability companies. LLCs are considered individuals for the purpose of calculating donation limits, meaning somebody who controls dozens of them can give the ostensible $65,100 maximum contribution dozens of times over.

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After a judge in Albany recused herself, the case was transferred to Supreme Court Justice Lisa Fisher.

While the prodigious fundraising of Gov. Andrew Cuomo has helped Democrats raise far more from LLCs than Republicans, the case broke along partisan lines similar to those that have existed in past occasions when the so-called “LLC loophole” has been debated. Democrats at the bipartisan Board of Elections joined in the suit against their agency, and each of the incumbent officeholders that joined the Brennan Center as co-plaintiffs is Democratic; the Republicans defended the agency, joined by a representative of state party chair Ed Cox.

Throughout Wednesday’s oral arguments, the Brennan Center's side repeatedly pointed to the role Glenwood Management, the developer that has used its LLCs to contribute more money than any other entity in the state in recent years, played in the recent trials of both Sheldon Silver and Dean Skelos.

“It is remarkable and fitting that we are here today, when in the past two weeks, the top Democratic and Republican legislators have been convicted of corruption, and as the testimony at their trials revealed, the LLC loophole was at the center of their corruption,” said Emery Celli’s Elizabeth Saylor.

Much of the day’s arguments involved whether a case could actually be brought, and Saylor argued that one of the plaintiffs, former Silver opponent Maureen Koetz, had standing because she was directly harmed by the former speaker’s ability to raise this sort of money.

“She lost in part because of the large amounts of money Sheldon Silver raised from LLCs” like Glenwood’s, she said.

Saylor also argued that several of their co-plaintiffs, including incumbent Assemblyman Brian Kavanagh and Sens. Daniel Squadron and Liz Krueger — all Democrats — have indeed been harmed “because their opponents were able to raise unlimited amounts of money through the LLC loophole.”

She later added that “there’s standing here because the elected officials’ ability to govern has been interfered with. For example, Sen. Krueger has said she’s been expressly excluded from meetings because Glenwood Management said it didn’t like her positions.”

John Ciampoli, appearing on behalf of the state Republican Party, disputed this.

“We haven’t seen any inability to govern, we’ve seen ineffective legislators who have been unable to get their bills passed,” he said, referring to the fact that several of the officials Saylor mentioned have introduced proposals to change the treatment of LLCs that haven’t become law. “Are you going to open the doors of the courthouse on the last day of the legislative session and let any legislators who couldn’t get their bills passed come to you?”

In regard to Koetz, the Silver opponent, he said she couldn’t raise money from donors that use LLCs because “they probably didn’t like her. One of the reasons they probably didn’t like her is because she’s involved now in a lawsuit to limit their freedom of speech and ability to participate in the political process.”

“I would argue that he has demonstrated no harm whatsoever,” Ciampoli said of professor Gerald Benjamin, an additional co-plaintiff. “In fact, he’s able to write more articles because of the issue being alive.”

Republicans argued more broadly that this isn’t the sort of case that anybody should be allowed to bring, since they view the board’s 1996 decision that established the current treatment of LLCs as beyond the statute of limitations. They’re now simply “trying to require the staff to do something” to change “a discretionary action of the Board,” according to the Board’s Republican co-executive director Todd Valentine.

“It’s not something that really is ripe for judicial action at this point,” Valentine said. “It is something the legislature could address, and clearly the governor has made it a priority to make it a legislative action.”

Brian Quail, a Democratic attorney at the Board, disputed this. He argued that his agency’s current treatment of LLCs was clearly contrary to law, and thus should be subjected to judicial action.

“It could not have been the intention of the legislature to create a loophole that has swallowed up the entire campaign finance system in the state,” he said.

The current dispute is rooted in the board’s stalemate in April after the Brennan Center requested that it reconsider its 1996 opinion. Reform groups also supported an attempt to advance legislation on the issue this year, but that stalled in the Republican-controlled Senate.